The Anishinaubag Intercultural Program, DAB No. 1477 (1994)

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division

SUBJECT: The Anishinaubag Intercultural Program

DATE: June 1, 1994
Docket No. A-93-239
Audit Control No. A-08-92-00598
Decision No. 1477

DECISION

The Anishinaubag Intercultural Program (AIP) appealed a determination by
the Office of Community Services (OCS) of the Administration for
Children and Families to disallow $43,267 charged to a grant awarded
under the Urban and Rural Community Economic Development Program. During
the course of the proceedings before the Board, OCS reduced the
disallowance amount by $16,645.16 on the basis of documentation provided
by AIP. AIP did not appeal $261 of the remaining disallowance but
returned this amount to OCS. Thus, the amount presently at issue is
$26,360.84. This amount is comprised of salary charges which ACF found
were unsupported by time and attendance records ($25,744.84) and payment
for electrical work which ACF determined was performed after the grant
had expired ($616).

AIP argued on appeal that its Board of Directors did not realize that
time and attendance records were necessary or required. AIP also
contended that it purposely delayed making the $616 payment for
electrical work because the contractors failed to complete the work on
time.

As discussed below, we conclude that OCS' reasons for disallowing the
salary expenditures and electrical contracting expense are reasonable.
Moreover, we find that OCS' withdrawal of an earlier disallowance of the
same costs did not preclude OCS from reissuing the disallowance.
Accordingly, we uphold the disallowance as reduced by OCS. Background

The grant in this case was awarded under section 681(a)(2) of the
Community Services Block Grant Act. That section authorizes OCS to award
grants for the purpose of promoting full-time permanent jobs, income
and/or ownership opportunities, a better standard of living, better
housing, and crisis relief projects for low-income residents of the
community. 52 Fed. Reg. at 4090; ACF Ex. 1. OCS awarded $258,339 to
AIP for a project to develop tourist and recreational attractions at a
community site. The grant was awarded for the period September 30, 1987
to September 29, 1989, and was subsequently extended through December
29, 1989.

On February 28, 1990 an independent auditor's report questioned
$103,241.14 of AIP's program costs. OCS concurred with the report and
disallowed this amount. In response to the disallowance, AIP submitted
additional documentation which it claimed supported the entire
disallowance amount. After reviewing the documentation, OCS withdrew
the disallowance.

The Office of the Inspector General (OIG) of the Department of Health
and Human Services subsequently examined OCS' decision to accept the
questioned costs, and concluded that OCS should have disallowed $43,267
of the $103,241.14 which the independent auditor recommended for
disallowance. OIG recommended to OCS that it amend its previous
determination and disallow $42,390 in undocumented salary expenditures,
$616 in expenditures incurred after the grant had expired, and $261
charged for a voided check. With respect to the $42,390, OIG determined
that AIP did not respond to the independent auditor's finding that AIP
failed to maintain records of hours worked, although AIP satisfactorily
addressed another basis for questioning the salary expenditures. OIG
also concluded that the documentation which AIP submitted in support of
its $616 expenditure failed to demonstrate that this cost was incurred
prior to the grant's expiration. In addition, OIG found that OCS
mistakenly concluded that the $261 voided check was a valid expenditure.
OCS concurred with OIG's findings and issued a disallowance letter which
revised its previous determination and disallowed $43,267 of AIP's
expenditures. AIP appealed the disallowance of the first two items to
the Board. Analysis

A. Salary charges

OCS disallowed $42,390 in salary costs charged to the grant for
construction workers and their supervisors hired by AIP to work on its
project. The disallowance was based on OCS' finding that AIP failed to
maintain adequate time and attendance records in accordance with Office
of Management and Budget (OMB) Circular A-122. This provision states in
pertinent part:

Charges for the salaries and wages of nonprofessional employees, in
addition to the supporting documentation described in subparagraphs
(1) and (2) above, must also be supported by records indicating the
total number of hours worked each day maintained in conformance
with Department of Labor regulations implementing the Fair Labor
Standards Act (29 CFR Part 516). For this purpose, the term
"nonprofessional employee" shall have the same meaning as
"nonexempt employee," under the Fair Labor Standards Act.

OMB Circular A-122, Attachment (Att.) B, 6(l)(3). 1/

On appeal, AIP argued that because it is an inexperienced grantee, it
did not realize that it was required to maintain time sheets for its
employees. AIP also contended that since its Board of Directors decided
on a monthly salary for both construction workers and supervisors, it
did not believe that time sheets were necessary. Moreover, AIP asserted
that time sheets can be tampered with and the Board of Directors chose
to trust in the "eagerness and integrity of low-income people to work on
a project they believed in." AIP Br., Ex. A-2 at 1. In support of its
expenditures, AIP submitted copies of cancelled paychecks made out to
the employees in question with attached vouchers indicating the pay
period and the amount of wages due. Time sheets were also attached to
some of the paychecks. OCS reduced the disallowance by the amount which
it determined was supported by these time sheets. OCS Br. at 1; OCS
Supplemental Response at 2-3.

AIP maintained, however, that the documentation supported all of the
questioned salary costs. AIP contended that it did not keep time sheets
for all of its employees since supervisors were able to closely track
the arrival and departure of the construction workers as the program
office was on site and there were only a small number of construction
workers employed at any one time. AIP also asserted that it had
completed the work on all the funded projects, had paid moderate wages
to construction workers, and had vouchers signed by members of its Board
of Directors to support the salary payments.

AIP submitted an affidavit from one of the program's Co- Acting
Directors in which he attested "that as [construction] workers they were
punctual and worked the hours stated." AIP Br. Ex. A-3 at 3. He also
attested that he had personally observed the construction workers
performing their duties and was on the site daily during all phases of
construction, and that for one stage of construction a volunteer
supervisor, obtained by AIP's Board of Directors, met with the
construction workers every day, first at 8:00 a.m. to go over the work
assignments for the day, and then at 4:30 p.m. to review the work which
they had accomplished. AIP Br., Ex. A-3 at 2. The Co-Acting Director
also stated that the construction workers were paid $750 per month
(except for the few whose salaries were increased to $1000 per month as
a bonus incentive), while supervisors were paid $1,100 per month. AIP
Br., Ex. A-2 at 1. In addition, AIP asserted that if an employee took
time off or was ill and unable to work, the leave taken was reflected in
the employee's voucher and paycheck.

As stated above, OMB Circular A-122 requires that salary costs be
supported by "records indicating the total number of hours worked each
day." OMB Circular A-122, Att. B, 6(l)(3). Although daily time and
attendance records ("time sheets") are the most direct means of
establishing the number of hours worked, other documentation might
reasonably establish this. The Board has previously stated that there
is no "strict formula" for such documentation, although it must satisfy
the regulatory requirements by verifying actual expenditures.
Pennsylvania Dept. of Public Welfare, DAB No. 1089, at 7 (1989).
However, the vouchers and cancelled paychecks and the affidavit of the
Co-Acting Director are not adequate for this purpose. While the
vouchers and paychecks confirm the amount of wages paid to AIP's
employees, they do not indicate the number of hours worked every day, as
OMB Circular A-122 requires.

The Co-Acting Director's affidavit is also ineffectual. As the Board has
previously held --

Affidavits . . . are not the type of contemporaneous documentation
that is required by OMB Circular A-122. Generally we will not
consider such non-contemporaneous evidence in support of a
questioned cost, unless a reasonable explanation of the absence of
the required records is provided. . . . Even when the Board does
review such evidence, we must scrutinize it more closely.

Second Street Youth Center, Inc., DAB No. 1270, at 4-5 (1991). The only
explanation which AIP has given for the absence of time and attendance
records is that the AIP Board of Directors did not know that such
records were required, nor did they believe that they were necessary.
This is an unsatisfactory explanation, however, since AIP was on notice
that the grant at issue was subject to the record-keeping requirement at
6(l)(3) of OMB Circular A- 122, and AIP admitted to keeping time and
attendance records for some of its employees. See AIP Supplemental
Response at 1. The Notice of Grant Award for AIP's grant specifically
states that it is subject to the terms and conditions of 45 C.F.R. Part
74. OCS Br. Ex. 2. Thus, AIP had notice of the requirement for records
of hours worked through binding regulations applicable in accordance
with the grant terms and conditions. Furthermore, the fact that AIP
maintained time and attendance records for some of its employees clearly
undermines its earlier assertions that it neither knew that time and
attendance records were required nor believed that they were necessary.
In any event, the Co- Acting Director's affidavit is insufficient to
support the salary payments at issue. His statements concerning his
personal observations of the construction work in progress, however
well-intentioned, cannot substitute for contemporaneous time and
attendance records verifying the hours worked as support for each
payroll check and voucher. This work was performed several years ago
over the course of a two-year project. It is simply not persuasive that
the affiant's memory would be an accurate substitute for actual records.

The Board later provided AIP with an opportunity to submit other
evidence of the allowability of the salary costs, such as documentation
which proved that its payroll costs were consistent with the level of
effort necessary to complete the project. See Order to Develop the
Record, dated March 24, 1994. AIP, however, did not provide any such
documentation. The Board has consistently held that it is the grantee's
burden to document expenditures. Louisiana Housing Assistance Corp.,
Inc., DAB No. 1310 (1992); Lac Courte Oreilles Tribe, DAB No. 1132
(1990). Thus, AIP clearly failed to meet this burden here.

Contrary to AIP's suggestion, moreover, the possibility that a grantee
might simply create false records to support its expenditures does not
render such record-keeping requirements invalid or excuse AIP's failure
to comply with them.

Thus, we find that AIP failed to maintain adequate time and attendance
or equivalent records as required by OMB Circular A-122, 6(l)(3), and
we uphold OCS' decision to disallow the $25,744.84 in salary
expenditures which ACF determined were not supported by time and
attendance records.

B. Payment for electrical work

OCS also disallowed $616 paid by AIP for electrical work completed on
the project. The disallowance was based on OCS' determination that AIP
failed to obligate the grant funds before the expiration of the grant
term, in violation of 45 C.F.R  74.111(b)(2) (1989), which states that
a "grantee shall immediately refund or otherwise dispose of, in
accordance with instructions from HHS, any unobligated balance of cash
advanced to the grantee."

This Board has previously held that expenditures which were incurred
outside the grant term are not allocable to the grant activities for
which the grant was originally awarded, and therefore must be
disallowed. Bedford Stuyvesant Restoration Corporation, DAB No. 1404
(1993) (citing Action, Inc., DAB No. 1400 (1993)). Moreover, as
previously stated, 45 C.F.R.  74.111(b)(2) provides that any
unobligated balance which remains at the end of a grant term must be
refunded to the federal government or disposed of by some other means
authorized by the grantor agency. The Office of Human Development
Services Discretionary Grant Administration Manual (OHDS/DGAM) in effect
during the period at issue also states that any unobligated funds
remaining at the end of a budget period should either be carried over
into the next budget period or "deobligated" and refunded to the federal
government. OHDS/DGAM, Chapter 1,  J (1986). 2/ The regulation at 45
C.F.R.  74.71 defines "[o]bligations" as "the amounts of orders placed,
contracts and subgrants awarded, services received, and similar
transactions during a given period, which will require payment during
the same or a future period." The Comptroller General has also defined
"obligation" as "a definite commitment which creates a legal liability
of the Government for the payment of appropriated funds for goods and
services ordered or received." Decision of the U.S. Comptroller
General, B-199282, April 18, 1979. It is clear from both of these
definitions that an obligation of grant funds does not occur until a
grantee enters into contracts, receives services, or in some other way
makes a definite commitment to pay grant funds. The OHDS/DGAM provides
that "recipients may not obligate grant funds to conduct project
activities after grant support ends." OHDS/DGAM Chapter 1,  H.2.
Grant support for this project ended when the extended project period
ended on December 29, 1989.

The record is devoid of any evidence that AIP obligated the grant funds
prior to expiration of the grant. AIP submitted statements from C.
Gladue Electric, dated July 2, 1990 and November 14, 1990, which list
electrical services, along with the amounts charged for materials and
labor. AIP Ex. A-4. AIP's cancelled check to C. Gladue Electric for
the total amount on the statements is dated November 26, 1990. AIP Br.,
Ex. A-4 at 1. These documents do not actually state either when the
work was performed or when AIP contracted for the work. Since the
statements are dated six to ten months after the grant expired, it is
likely that the work was neither performed nor contracted for before the
grant expired. Moreover, AIP did not specifically contest OCS'
assertion that AIP did not obligate grant funds until July 2 and
November 14 of 1990, but merely submitted the statements without any
explanation of their significance. AIP simply indicated that grant
funds were "applied to a grant building project that was not
electrically wired until November of 1990." AIP Reply Br. at 2. Thus,
we find that AIP failed to meet its burden of documenting that this
November 1990 expenditure was allocable to the grant.

Accordingly, we conclude that AIP did not obligate payments for this
electrical work until after the grant term had expired. Since there was
no further grant awarded to AIP under this program to which unobligated
grant funds could have been applied as a carryover of funds, AIP was
required to refund the monies to OCS, in accordance with both 45 C.F.R.
 74.111(b)(2) and the OHDS/DGAM.

AIP argued, however, that it did not pay the electrical contractors
until after the grant had expired because they had failed to complete
the job within the agreed- upon time. AIP asserted that it "did not
want to expend federal funds prior to the job being completed." Notice
of Appeal, dated September 22, 1993.

AIP's decision to withhold the contractor's payment is irrelevant to
this appeal, however. A grantee does not have to liquidate its
obligations before expiration of the grant in order to retain grant
funds. 3/ The applicable regulations merely require that a grantee
obligate all grant funds before expiration of the grant. As demonstrated
above, there is no basis in the record for concluding that AIP made a
commitment to incur the cost of electrical work, or that the work was
performed, thus obligating the funds before the grant expired. This, and
not AIP's failure to pay the contractors before the grant expired, was
the basis for the disallowance. Thus, OCS reasonably determined that the
$616 at issue was an unobligated balance which should have been remitted
to it.

C. Reissuance of the disallowance

AIP also argued that since OCS withdrew its original disallowance, it
cannot now issue a new disallowance comprised of salary expenditures and
electrical expenses which it had previously accepted.

We conclude, however, that it was within OCS' authority to reissue the
disallowance. OCS' original decision to withdraw the disallowance was
based on additional documentation submitted by AIP; however, as the OIG
auditors discovered, this documentation was not adequate support for the
questioned costs. Since AIP failed to prove the allowability of the
costs at issue here, and since AIP never alleged that it was prejudiced
in any way by the delay occasioned by OCS' decision to withdraw the
original disallowance, we find that OCS could properly reissue the
disallowance. Conclusion

On the basis of the foregoing analysis, we uphold the disallowance as
reduced by OCS.

_____________________________ Donald F.
Garrett

_____________________________ M. Terry
Johnson

_____________________________ Cecilia Sparks
Ford Presiding Board Member


1. The cost principles of OMB Circular A-122 are made applicable to
nonprofit grantees such as AIP by 45 C.F.R.  74.174(a).

2. OHDS (of which OCS was a subdivision) was a predecessor
organization of ACF. ACF was formed by the combination of OHDS and the
Family Services Administration.

3. The OHDS/DGAM requires a grantee to liquidate all obligations
within 90 days of the end of the project period, the date the final
Financial Status Report is due. OHDS/DGAM, Chapter 1,  H.2. While
this time can be extended, this would pertain only to obligations
actually incurred during the project